Question For Financial Advisors

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Dwight_Frye

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My severance package funds will be about depleted by next June. I will also turn 65 that month. I have no plans on returning to work and consider myself retired. I will need to either start drawing Social Security or take some withdrawals from an IRA to cover my monthly expenses by June. My home is paid for and I have no debt so I don't need a lot of money each month.

Here is my question: Am I better to withdraw whatever I need to live on from my IRA and pay taxes on those funds and wait until my "full retirement age" of 66 years and 2 months before claiming my SSI benefits, or just start collecting my SSI at age 65 ?

Waiting another year will mean an extra $223 per month in SSI benefits, and I live in California which (believe it or not) does not tax SSI benefits.
Thanks
 
Basically it boils down to how long do you think you're going to live? If you think you'll follow the normal schedule, on average people tend to live a little longer than the tables SS uses to predict lifespan. It's suppose to be neutral when you take it. But people are actually living longer so you'd make more money by delaying it as long as possible. But if you die early, then it makes more sense to start taking it early. I think it's like 8% per year, so delay it a couple year and get more or take it early and get less.
 
Just an FYI and you may already know this.

You may want to start drawing your Social Security and set it up when you start drawing MediCare. The SS office will help you to do both. Your MediCare payments will come out of your SS payments.

When turning 65, you only have seven months to file for MC. Otherwise, if you miss these 7 months for filing, you will forever pay an extra 10% more for your MC payments when you do file.
These 7 months are as follows for you:

3 months prior to turning 65(March, April, May)
The month of your 65th birthday(June - in your case)
3 months after(July, Aug, Sept)

Don't miss this.^^^

Best of luck,

CB
 
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There are much better message boards to post this question to than one focusing on motor oil.
Why would you trust responses here any more than those your fellow shopper online at Walmart? (my response included).
I'd suggest Bogleheads or Early-retirement.org.

But really, really, really not a motor oil forum.
 
GO BACK TO WORK! Stretch that severance package out and WAIT...
- as in think twice (as you are doing) before drawing Social Security and (if possible) leave the IRA alone too.

Flame suit engaged.

I know you said you have no plans to continue working, but now is the time to try something you've always wondered about...

Your question reminds me of a neat story in a book called "Your Money After the Big 5-0" in which a "retiree" who has some "plumbing experience" starts making house calls... A call comes in on or about a holiday and the near frantic caller needs a toilet unclogged asap, but no other plumbing outfit is available. Retiree goes over, pulls a child's toy out of the inner workings of said toilet, and after all of ~ 3 minutes of "work" - job is done.
When asked "How much do I owe you?" The "plumber" confidently says "$150."
"What!?! $150? It took you less than 5 minutes. I'm a doctor and I don't get $150 for that!" was the response as the money is gathered.
Response from "retiree": "Nope, and I didn't either when I was a doctor."
 
Originally Posted by kfy81
GO BACK TO WORK! Stretch that severance package out and WAIT...
- as in think twice (as you are doing) before drawing Social Security and (if possible) leave the IRA alone too.

Flame suit engaged.

I know you said you have no plans to continue working, but now is the time to try something you've always wondered about...

Your question reminds me of a neat story in a book called "Your Money After the Big 5-0" in which a "retiree" who has some "plumbing experience" starts making house calls... A call comes in on or about a holiday and the near frantic caller needs a toilet unclogged asap, but no other plumbing outfit is available. Retiree goes over, pulls a child's toy out of the inner workings of said toilet, and after all of ~ 3 minutes of "work" - job is done.
When asked "How much do I owe you?" The "plumber" confidently says "$150."
"What!?! $150? It took you less than 5 minutes. I'm a doctor and I don't get $150 for that!" was the response as the money is gathered.
Response from "retiree": "Nope, and I didn't either when I was a doctor."

Great story! I had a wise arse doctor tell me that once on an estimate. I asked him if he wanted to trade houses and bank accounts. Needless to say I wouldn't have worked for him had he given me the job, my reply to him guaranteed me I wasn't getting the job. That was exactly why I said what I did.
wink.gif
 
There are a number of considerations that must be factored into your decision. If you are married when you start collecting will impact survivor's benefits for your spouse. Collecting at FRA or later (up to age 70) will mean more survivor benefits.

Also, in the SS calculations they look at the total you collect if you live an average lifespan and do not factor in the time value of money - if you can make an average stock market return on your investment by either saving your SS payments, or investing IRA money you don't spend while collecting SS it slants the decision toward collecting early.

As an example, if I was single and could average an 5% or better return on investment, it made sense for me to collect as soon as I retired at 64. But since I'm married and my spouse is younger and likely to outlive me, I decided to delay collecting my SS until I reach 70 for the increased survivor benefits she will get.

One other important consideration during your current relatively low income years is your ability to roll over portions of your current IRA to a Roth IRA. This should be money you can leave invested for at least 5 years after the rollover date, but after you pay tax (at your current low rate) on the rollover amount, future gains are tax free.

There is no one size fits all answer. For your specific situation it may to be worthwhile to see a real financial planner. By real, I mean someone who doesn't sell commission based products.
 
My Father in law had an interesting approach. he retired at 65 and spend 5 years converting his traditional IRAs to Roth IRAs. He would convert right up the top of the 0% tax bracket so he owed no taxes on the conversion. Then it would grow tax free and he owed no taxes when he took it out. He started in 2010 and did that until 70.5. He rode the market up these last 9 years and is grinning like a fat cat now at how smart he was.
smile.gif


Now he can take the Roth money out tax free.


Something to talk to a real financial planner about. Don't try this in your own.
 
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If you have other resources, and you are in good health, delaying SSI is generally considered a wise idea.
Each year, up to 70 I believe, increases your benefit by a GUARANTEED 8%.
Your financial advisor (I like Schwab) can show you the breakeven point.
Of course you may need to sell other assets (401K, stok, etc) to live on.
It becomes tricky because market returns have been so good over the past 10 years.

Talk to a qualified advisor.
Congrats on your retirement. Well done.
 
This question cant be answered without knowing

a) your monthly expenses ( don't forget health insurance, property taxes and mechanical systems in the house! )

b) marriage status, and health of spouse, children status

c) your 401K amnt and ave return

d) your retirement plans - like travel, hobbies, etc

c) Your Health

If you wont be depleting your 401K with leveled monthly costs - just skimming the returns -you can wait - thats a "no brainer"

Just know that the more you leave on the table the harder it is to recover that back - especially if your health takes a turn.

Also know you will have minimum required distributions from that 401 or roth at 70.5. These can easily be over $20,000.00/year !

You may become "cash flush" which can negagtvely impact other income or discount streams

- I am "retired" but not collecting yet. Im skimming a brokerage account. But I'm only 63.
 
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If we simplify the question about the 14 months of living expenses after turning 65 - cover with IRA withdrawals or SSI benefits.

Using SSI will mean foregoing $223/month increase. Does you intended IRA withdrawal principal amount earn $223/month after taxes?

Most likely not so logically it makes sense to wait untill 66 years old to draw SSI.

I'm not sure about the implications of Medicare, I didn't think it was in any way related to SSI draws.
 
Its nice to hear other people's ideas, but this is a decision you have to make on your own, based on your financial needs. Everyone is an expert on other people's money.
 
Originally Posted by Bud
Its nice to hear other people's ideas, but this is a decision you have to make on your own, based on your financial needs. Everyone is an expert on other people's money.

Free advice can surely be taken or left.

Now, most all of us are NOT financial planners but

considering penalties and taxes - this gets COMPLICATED!

Many on this forum are living this "retirement life" and have learned much.

That advice is invaluable.

Me? I'm just venturing into it myself.
 
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Those who advise going back to work to try something you always wanted to do obviously have not applied for jobs when they're 65.

I'll soon be 63 and don't want to retire but cannot stay at present job to 66. Finding out it's not that easy even in this economy. Age bias is real.

90% of financial advise is to wait to full retirement age. Exceptions are health or dire financial situation. One interesting idea was to retire at earliest date and put SSI money into investments, assuming you don't need that money to live on.
 
From a life expectancy and finance perspective, your best bet is to keep working until your are around 75 - even part time - and take your medicare on your 65th birthday, and SS on your 70th. At 70.5 years withdraw the minimum yearly amount from your IRA (not the Roth) , 401K, 403b, etc.so you don't get penalized. You can keep contributing to your Roth IRA as long as you are working too, and that money can be passed to your heirs tax free and could accumulate tax free for another lifetime, less the minimum required distribution for the inherited Roth IRA
 
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